• Delaware Court Refuses to Extend Rights of Preferred Stockholders
  • March 26, 2010 | Authors: Mark I. Gruhin; Eric G. Orlinsky
  • Law Firms: Saul Ewing LLP - Washington Office ; Saul Ewing LLP - Baltimore Office
  • In an unpublished decision handed down last week, the Delaware courts once again confirmed that when the rights of preferred and common stockholders diverge, the Board ultimately owes its fiduciary duties to the common stockholders. The case involved a dispute over the allocation of merger consideration between the preferred and common stockholders of the acquisition target. The court permitted the merger consideration to be allocated among them on an as-converted basis, and declined to force the acquisition target's board to allocate more of the consideration to the preferred holders notwithstanding the preferred holders' argument that the special attributes of the preferred stock ought to have entitled them to receive a larger share of the consideration. This decision and its brethren send a cautionary message to angel/venture investors -- particularly those with Board representatives.